It is well known that in such systems, a substantial problem arises through the tendering of stolen, delinquent, void or counterfeit cards (generally known as "hot" cards) to authorize transactions. The usual method of control is to verify card data against a file listing data pertaining to hot cards. When carried out by visual verification of card data against a printed list, this procedure is slow and subject to human error, whilst it is difficult to maintain adequate updating of the lists. It is therefore attractive, where electronic terminals are used, to maintain an electronic hot card file in a frequently updated memory accessible to the terminal so that the verification may be carried out electronically, the card data being in any case required to be entered either by keyboard or by a card reader in order to authorize the transaction.
One problem with this approach is the size of the hot card files often required. The provision of adequate memory at individual terminals is often either unduly expensive or impracticable; the use of systems such as that disclosed in U.S. Pat. No. 4,114,140 issued Sept. 12, 1978 to Kubina is only practical when the number of different cards to be verified is reasonably small, as where cards are issued only on a restricted class of persons. It is not suitable for example where major credit cards having national or international circulation are involved. Even the improved system disclosed in U.S. Pat. No. 4,296,404, issued to Sheldon on Oct. 20, 1981, suffers this same failing, though the local memory is periodically updated by communication with a central computer. Provision of the necessary memory at a central supervisory computer involves either continuous on-line access to the central computer or at the least excessive communications costs and tiresome delays if the terminals are remotely located and have to access the central computer each time a transaction is to be verified. Systems such as that disclosed in U.S. Pat. No. Re. 30,821 (Goldman) are only really practical when the terminals are concentrated in a fairly small area, or a dedicated communications network is already available.
One approach to this problem is to carry out a local test of the data presented to a terminal to determine whether the card is void or central verification of a particular transaction is required. This may be done either by setting a limit on the size of a transaction, above which central verification is required, or by more sophisticated means as described in U.S. Pat. No. 3,566,091 issued Feb. 23, 1971 to Goldman, and U.S. Pat. No. 3,740,530 issued June 19, 1973 to Hoffer et al. Such systems can detect cards which are self-evidently expired or otherwise void, and will limit the loss on any particular transaction, but will not identify cards which are stolen or are associated with delinquent accounts.